“In June of 2022, the United States and Taiwan launched the United States – Taiwan Initiative on 21st Century Trade. Since then, the two sides have pursued an ambitious schedule of meetings, including most recently in January 2023, in an effort to make progress as quickly as possible,” the U.S. Trade Representative said in the latest annual report published March 1.

The Initiative is quite special. Last year, Taiwan was left out when Washington revived the Indo-Pacific Economic Framework for Prosperity because of concerns that other countries would oppose Taiwan’s membership. At the same time, Deputy U.S. Trade Representative Sarah Bianchi announced together with Minister without portfolio John Deng, who serves as Taiwan’s chief trade negotiator, the launch of the United States – Taiwan Initiative on 21st Century Trade, which covers eleven areas.

A member of Taiwan’s trade negotiations team reveals that Washington and Taipei will first sign the agreement regarding the five areas of trade where consensus has been reached. The remaining issues will be added as soon as negotiations conclude “to prevent a small number of contentious issues from delaying the entire process.”

Taiwan’s first formal trade agreement with the US

The Initiative constitutes an important breakthrough because it is Taiwan’s first formal trade agreement with the U.S.

If the U.S. Congress authorizes the U.S. government in the future to negotiate tariff concessions and market access, then the Initiative could very likely be upgraded into a US-Taiwan Free Trade Agreement (FTA).

It is Taiwan’s diplomatic isolation that stands in the way of formal treaties. Deng describes the dilemma: “The greatest concern of Taiwanese companies is to become isolated. Every country in the world wants to do business with Taiwan, but when you bring up agreements, not a single country dares sign one.” The Initiative will demonstrate to the international community that Taiwan provides a positive trade environment and good governance. But more than that, Taiwan hopes that Washington’s taking the lead will reduce the misgivings that other countries have regarding negotiating trade pacts with Taiwan.

The upcoming Initiative and the existing Trade and Investment Framework Agreements (TIFA) are two very different constructs. First, TIFA clauses are not mandatory. Bilateral dialogue on trade and investment issues is only launched if both sides have issues that they wish to discuss and if both are willing to do so. In the 28 years since its conclusion in 1995, only 11 council meetings have been held.

“TIFA is a council that serves to deal with individual bilateral problems, whereas the United States – Taiwan Initiative on 21st Century Trade is a bilateral agreement with confirmed content and concrete rules to follow,” notes Deng in explaining what sets the two mechanisms apart.

However, some question whether the Initiative really constitutes a breakthrough on the trade front. “In terms of content, the Initiative and FTA are worlds apart. Currently, it is not clear what the Initiative’s negotiation goals are and what kind of benefits it will create for Taiwanese companies and the people,” says Jang Chyi-lu, a legislator for the opposition Taiwan People’s Party.

John Deng, Taiwan’s chief trade negotiator (Source: Pei-Yin Hsieh)

Taiwan to adopt ‘US standards’ in five areas

Deng does not brush off such misgivings, acknowledging that the Initiative does not encompass tariff concessions and market access. But he points out that global developments in the past years have shown that laws, norms, and government subsidies constitute even greater trade and investment obstacles. Deng believes that the Initiative can be regarded as a set of advanced trading rules that allows countries to engage in fair competition on a level playing field.

However, to put it bluntly, this means that Taiwan will adopt some U.S. standards.

So far the two sides have reached consensus in the five areas of regulatory practices, trade facilitation, anti-corruption, environment, and state-owned enterprises. Further negotiations are needed in the fields of agriculture, small- and medium-sized enterprises, digital trade, standards, labor, and non-market policies and practices.

Deng illustrates the Initiative’s benefits with an example. If Taiwan and the U.S. were to reach consensus on standards for the approval of medical devices and drugs, their governments could skip the review process for devices and drugs imported from the other side, since they have already agreed on “regulatory practices”. Under such a mechanism, the introduction of medical devices and drugs into the local market could be shortened substantially without compromising public health.

Thanks to “trade facilitation”, fewer customs clearance checks will be necessary, allowing manufacturers to cut costs. Negotiations in the areas of anti-corruption, environment, and state-owned enterprises served to mutually harmonize government norms to give Taiwanese and American enterprises clear, predictable rules of the game.

“The immediate benefits are by no means that direct, but we can expect bilateral ties to become more harmonious. When Taiwanese companies go to the U.S. to grow their business there, they will find it easier to get acclimatized,” says Deng. He also concedes that the economic benefits of trade negotiations that do not cover tariff cuts and exemptions are more difficult to estimate using economic models.

Real economic benefits more important than political significance

On the other hand, Taiwan’s government hopes that the Initiative has a “model effect” that can help Taiwan access industrialized markets and even join regional trade organizations. In early February, Taiwan and Canada launched formal negotiations on a Foreign Investment Promotion and Protection Arrangement (FIPA).

Will this lead to an FTA? Trade experts believe that expectations of signing an FTA with the U.S. are not realistic given that successive Republican- and Democratic-led U.S. administrations have not shown any interest in opening the market and concluding an FTA. With the Initiative being tabled in the run-up to Taiwan’s presidential elections in January of 2024, its political implications are much stronger than its real economic benefits, they argue.

“Washington’s intention in pushing such American-style trade agreements is to contain China. Amid this competition, Taiwan is an indispensable ally for the United States. Since it is impossible to include Taiwan in the Indo-Pacific Economic Framework, they need to find a way to let us join the U.S. camp,” notes Liu Da-nien, head of the Regional Development Study Center at Chung-Hua Institution for Economic Research.

“The U.S. hopes to deepen economic linkages, strengthen the bilateral economic dependability and inseparability of interests, and consolidate the motivation of American society to support Taiwan in the long run. Taiwan can interpret the signing of the agreement as strong backing from Washington that bolsters domestic confidence in the United States,” says political scientist Wen-ti Sung, who teaches at the Australian National University’s Taiwan Studies Program. He points out that “each side gets what it needs” out of the trade talks.

Will the agreement help prevent Taiwan from becoming economically marginalized? Liu thinks that Washington has little influence on Taiwan’s admission to the 11-member Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) because it is not part of it. Since the U.S. does not want to cross China’s red line, it came up with the Initiative as a stopgap measure. Instead of banking on its “indirect effects”, the government had better find out how it can pursue other matters in Taiwan’s interest outside of the negotiation framework set by Washington, suggests Liu.

Jang points out that the United States has long been the most important source of technology imports for Taiwan. Since Washington is now demanding that Taiwan Semiconductor Manufacturing Company (TSMC) build a fab in the United States to strengthen supply chain resilience, Taiwan should seek broadened bilateral cooperation in advanced technology to improve the competitiveness of its domestic industries.

Have you read?

• US-Taiwan trade talks and the need for speed 
• U.S. and Taiwan: 2022’s Reverberations from 1979
• The IPEF train has departed. Now transferring to the BTA track

Translated by Susanne Ganz
Edited by TC Lin
Uploaded by Ian Huang